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Social media invoice template for Finance

hey everyone eric here in this video i'm going to teach you how to build a financial model from a to z for a social network startup with advertising based monetization we'll model out the first four years of growth including venture capital fundraising rounds with lots of discussions around businesses in the space and important things that i see happening okay so let's get started with a quick overview of the sector so social network business models so what makes a business a social network two things first thing is that it's community-based remember there's a lot of advertising businesses that don't have a community like google search showing a lot of ads but nobody actually interacts with each other and then the second thing is something called network effects with any network based business a network effect is something where when one new user joins the platform it increases the value of the product for all previous users and it helps technology companies grow really quick so with a social network one new user is going to connect to a bunch of people they're going to create a bunch of free new content for the platform and so that makes the platform better for all the previous users another network which isn't a social a social network but like a financial network like bitcoin one new user actually has to pay slightly more um for bitcoin bit up the price and that increases the value of bitcoin for all previous bitcoin holders so that's a network effect where each new user increases the value of the product for all previous users so something really interesting that very unique to technology companies so now i'm going to just talk about a couple of the axes of these businesses sort of either go more towards one side or more towards the other so the first point i want to make is that i think there's really a last generation of social network businesses and there's really a next generation and right now you can see really clearly sort of what's behind us and what's in front of us and i think what's in front of us is that creators are going to make the majority of the revenue and the platforms are going to be more like um sas businesses where they just sort of provide the platform as a service rather than the current version which is like authoritarian regimes where the creators have no power and the platforms control everything and make all the money i think that's unsustainable the revenue split so the last generation of companies the platforms took 100 of the revenue paid creators nothing i think that's going to flip creators are going to make a lot more money with the new sort of next generation of tech of social network companies and that's going to drive an evolution from really low value click optimized content where the platform has all the power and takes all the revenue to the opposite which is going to be i think a positive thing for users also for creators monetization with these businesses you can monetize them with ads you can monetize them with the subscriptions with product sales with sponsorships which are sort of like ads as well so these businesses are all monetizing themselves in one way or another usually with one of those things and then communities communities is one of the really unique thing about things about social networks but also one of the nightmares about them so how do they form where do they gather certain communities or just people who know themselves know each other in their personal lives interacting with each other and then certain communities organize themselves around a certain type of content certain subject a certain influencer so they might log on and interact with people who they don't know in their personal life but that they have something in common with so communities can be sort of closed off like in a bunch of different subreddits or it can just be sort of wide open like facebook and then managing the communities is hard some communities like on reddit will self-manage make rules ban users if they break the rules but then some communities are the platform itself has to manage them and so like on facebook when all this really crazy stuff happens on whatsapp or on facebook whatever facebook's always responsible it's always their fault because they're supposed to be managing their community of you know two to three billion users which is like really really crazy so and then the final piece is content what's the format of the content so many formats you can have long short video audio text really really low value really really high value and then the types of users that the co that the platform attracts are massively important in terms of monetizing the platform some users are really valuable for advertising and some users are not so that's important and obviously the geographies really matter all this stuff matters but we're going to create in this video a social media business model with ad based monetization that's more like the dominant last generation social media businesses so like facebook instagram youtube etc so let's jump in so with all these business models the first thing you need to build is sort of your um user acquisition model to try to figure out uh your revenue and sort of how much you need to spend in marketing and then what you kind of get in revenue and so we are going to start here in [Music] january 2023 and we're also going to assume that there is a 12-month period that precedes this where we're just building the platform but we're not acquiring users because we don't have a product yet so we'll model that out after but for now we assume the platform's going live and we're going to start spending in advertising so let's kind of make a nice ramp so let's say we're spending like 5k a month and then you know we're getting some users and then it's 10k a month and then okay it's going well 25k a month and again we're going to model this out to be four years total including that first sort of 12-month build so let's see here 50k let's say keep doubling it 100k through the first six months and then let's just say from here we just grow the advertising 20 per month through the end of this sort of third year of user growth so by the end we're spending what 2.6 million dollars a month okay and so we always start a financial model with the advertising spend and then what we need to do from there is figure out what are the customer acquisition costs and back into how many new users or how many new clients are we getting so let's say our paid cac and customer acquisition cost is the total marketing you spend to get one new user to basically download your product or buy your product so i'm going to say in this situation it's app downloads because most social networks are like completely mobile apps now so i'm gonna say um we have a customer acquisition cost of twenty dollars so it costs us twenty dollars in marketing to get one person to download the app so let's say for the first year it's 20 but then in the second year it it's lower it's 10 and just from then on it's it's 10 to get one new user to download the app so maybe we're advertising on other platforms like youtube like you know with some cool short clip and we're like hey you know download our whatever new app and you know interact with your friends i don't know so from that we can figure out our new users but these are the paid users so it's going to be 5000 divided by your cac so if we spend 5 000 we should be able to get 250 app downloads at 20 of download but what about all the people that basically are organic users who download the app because their friends told them about it or some way that's not related to paid advertising word of mouth through google whatever it is so this is going to be something that we model using something called the paid organic ratio so it's going to be how many organic users do you get i guess the organic to paid ratio so it's going to be how many organic users do you get for every one paid user so let's say we start with with one so for every one new user that that we pay for um we get one user who downloads it for free because maybe that person tells their friend so now let's look at new users organic so this is going to be paid times 1. so the total new users is going to be 250 plus 250 but what we're going to see over time is that we're going to get more and more organic users free as you get the network effects and as the sort of word of mouth about the platform sort of spreads so first let's just copy this formula over that's ctrl c then control v okay so here we are so let's say for the first three months for every one paid user you get one organic user but then let's say you know word of mouth starts getting out and then you start getting two organic users for every paid user and then three and of course you need to keep spending in paid advertising because um you need to keep bringing new users onto the platform but the more popular the platform gets um the more network effects you start to get and the more sort of organic growth you start to get so let's say sort of in the second year for the first six months it's five organic users for every paid and then let's say it's 10 after that 10 after that and then by year 3 january 25 let's say it's 20. so for every one paid user that you get 20 people are going to download the app from word of mouth and this is absolutely what the kind of thing you should be expecting because you won't be able to pay to acquire all your users for a social media network okay so then we have our sort of total new users and this is sort of a monthly monthly total but we need to figure out okay how many total active users do we have on the platform so first off let's use a churn rate um users monthly so obviously we're going to get 500 new users but some amount of those users is going to drop off they're going to download the app they're going to go around on it and they're going to say you know this thing sucks and they're just going to delete it off their phone so let's say starting out our churn rate is 10 so each month 10 percent of the users basically drop off and especially in the beginning because they're going to go on there and maybe there's not going to be that many of their friends or not that great of content but let's say over time as the platform grows and the network effects sort of um amplify you the churn rate drops so now only five percent of people each month are sort of turning off or canceling off the platform so the churn users are then going to be um well you're not going to have any churn in month one but it's going to be 500 times 10 percent that's going to be a negative number and so let's see here 50. so you're going to lose 50 users every month and so as we uh if we copy this formula across you'll see that you know each month there's some amount of users that we're turning off so okay so we know how many new users we're getting each month we know how many lose users we're losing each month but what about our total monthly active users and this the acronym for this is mau monthly active users so total monthly active users is basically all of the people that on a monthly basis are active on the platform so you know they're logging on and they're doing different stuff and so the monthly active users is going to be 500 plus that churn rate so in the first month it's 500. but in the second month remember it's a cumulative number so it's going to be the previous month total plus total new users plus the the negative number of the turned users so it's going to be those 500 users from month 1 plus 500 users from month 2 but then you lost 50 users so then it's 9.50 so this is a sort of our cumulative total people who are doing things on the platform and so we're saying that we get to 30 million monthly active users by december 2025 and so first off just really quick if you're finding this content valuable please like this video and subscribe to my channel right now so you don't miss any of my videos so let's talk about monthly active users is 30 million reasonable well definitely facebook right now has 2.5 billion monthly active users instagram when facebook purchased instagram which was widely widely criticized and facebook you know a lot of people said it was facebook's dumbest thing they've ever done uh i think instagram had about 100 million active users and facebook paid about 1 billion dollars and they built that product instagram with a team of i think was like a 10 or 11 people so but now instagram is has billions and billions of users and whatsapp another company that facebook acquired when facebook acquired them they were getting i think six or seven hundred thousand new active users every single day on whatsapp which is just mind-boggling so if you get the product right and you get the network effects of the product like sort of supernatural network effects you can get a lot of users um so yeah businesses do grow like this they exist and that's ultimately what you'd want so now let's think about okay we know how many monthly active users we have let's figure out um how much revenue we can make from them so what we're trying to figure out is how often they log in how long do they log in for how many ads are we able to show them per minute or per some certain period of time how much can we charge um advertisers to come on our platform and show ads and then ultimately what's the amount of revenue that we can generate from this user base so i'm going to walk through all that with all the sort of metrics that we think about when we talk about social networks and just advertising platforms in general because yes it's a social network but what a social network ultimately becomes or at least the sort of last generation social networks or just advertising platforms they're more advertising platforms than social networks so let's go through this you have this average log ins so these are just like average sessions per month so of a daily active user so how many times is a sorry a monthly active user how many times is a monthly active user login per month maybe 25 times let's say and then let's say average session time in minutes okay so they log on 25 times and each time how long do they log on for well on facebook the average user logs on for um i think it's like 40 minutes a day or something around there maybe more which is again that's like really really insane but let's say 20 assuming that our platform you know people aren't logging on quite that long um and then add impressions per minute so we're saying okay if they log on for 20 minutes how many ads can we show them which is called ad impro impressions and this is ultimately a concept that's called ad load and so um it's like what's the maximum amount of ads you can show someone within you know a set period of time and so i'm going to say that we show people um in every one ad for every five minutes although on facebook they're showing way way more ads than that um so one out every five minutes so i'm saying ad impressions per minute is one divided by five um and then finally this will give us the ads shown per user per month so this is kind of cool so you take the total logins per month times the total minutes so now you have the 25 times 20 minutes times ads per minute so we're able to show each user 100 ads per month so let's just copy this across and i also want to increase the ad load over time because these businesses usually when you start out you can't show a lot of ads or you don't because you the main thing you want is for a lot of users to come on the platform and you know that you can monetize a platform later down the road so let's say at first we're showing one ad for every five minutes but in the second year we show one ad for every uh one out every three minutes so um let's just decrease the amount of decimals here so one ad every three minutes and then in the third year we get to december here in the third year let's say it's um one ad for every two minutes so now we've increased the ad load um and so we can show originally we're showing 100 ads per month to each user and now we're showing 250 so you know we're probably going to be generating a lot more revenue now again if you increase ad load too much you see users start to have less activity because it gets annoying so there's a limit to ad load and if you cross it you end up sort of it backfires so finally there's another metric which is the cost of advertising and it's called cpm cost per ml and mil is the latin word for a thousand so it's cost per 1000 ad impressions and this is if you advertise on facebook google reddit pinterest youtube you'll always see that this metric the cpm and it's okay how much does it cost the advertiser to show their ad 1000 times so um let's set a cpm of like two dollars and fifty cents and just by the way this number can vary so wildly it's just absolutely insane it can literally be hundreds of dollars um but the average across uh like facebook google sort of globally is about two or three bucks but once you get once you start targeting more specific users it can go up a lot like if you're targeting engineers with some software product they're going to be increasing your cpm significantly because that audience is going to be more valuable for you as the advertiser so but we're going to use sort of a global average is like two or three bucks and let's say we just um that's the cpm price that we charge our advertisers because again we're now an advertising platform probably in the beginning it's going to be zero let's say for the first year we don't do any advertising so we put it as zero and we're gonna have no advertisers because we're just trying to build up users because think about this if there's only twenty thousand users on the platform no advertisers are going to want to advertise because there's not enough people and let's say in the second year we set a really low cpm for advertisers as our users grow you know 100 000 to 1.6 million and we're like hey you know we have a small user base it's growing really fast we'll give you really low cpm average you know which is a dollar fifty come and try out our platform and then as we get more and more users we can raise our cpms and again this is what basically all advertising companies do now they're better their ad network gets the the more they raise the price of advertising okay so what do we have left so we have revenue per ad so how do we calculate that in this case we would just take our cpm and divide it by 1000 because remember cpm is cost per 1000 ads so if we want to just figure out how much does one ad cost we can just divide it by a thousand and so let's see here yeah there we go so you see each each ad is like a fraction of a cent okay revenue per ad and then let's have the monthly revenue per user and we know that we show 100 ads per month to each user times the revenue per ad so monthly revenue for the per user we're pre-monetization here so it's going to be zero but as we move forward you'll end up being able to monetize each user and we see each user towards the tail end of this is makes generates basically 63 cents a month if you look in the united states facebook makes about forty dollars per user per year so that would be like you know two or three bucks a month but other advertising platforms make significantly significantly less and when you look globally facebook only makes like five or ten dollars a year per user so these are numbers that would be reasonable and again i'm kind of doing this on a based on a u.s centric social network but any social network if you know if you can prove it out in one market then you should expand it to all markets then you have the annual revenue per user so you just take monthly revenue divided by 12. so this just gives you a sense of like you know how much is each user worth um and yeah we're saying about eight bucks a year so i think that's pretty reasonable as a gut check if you think about what other companies are doing and then you have your total revenue which is monthly revenue times monthly active users so monthly revenue per user times total users and so in this situation over time you ramp this up your network effects get going um by the end of month of year three when you have 30 million monthly active users you're getting to 18 million per month in in revenue but before that it's it's ramping up slowly so when you first monetize the platform for instance in january 2024 the first month you make you know 25 thousand dollars 26 thousand dollars and over time you're ramping this up and as you increase your cpms as your organic app downloads start to accelerate as your churn rate starts to drop as your ad load starts to increase your revenues just starts to spike but with with a lot of these companies just getting all the users onto the platform um is the key to being able to basically pull all those levers so now that we have the revenue let's move into the p l and we can talk about revenue users all the cost of goods sold you know what do we do with our creators do we pay our creators um what about our team to build the platform our marketing all this different stuff and so we can understand how much money is the business burning or losing and how much venture capital money do we need to actually fundraise to make this work okay so we actually have enough information to fill out a few things just to start with so like i said before our first month of our model we're saying is january 2022 and we're going to spend the first 12 months just investing in the technology and building the platform before we try to get any users so this is going to be like this pre-launch phase and then remember for the first year we're going to be getting users but we're not going to be running any sort of advertising and then in the third and fourth years we're going to be monetizing the users so year one in our revenue section generally i always like to call out the most important metric of a company and a lot of times that's how many customers how many users how many some sort of metric like that tracking the total number of high level customers so we're going to have monthly active users so i'm just going to put that at the very top of the model so that you can always sort of see that so link it in here go to your user acquisition and total monthly active users and remember january 2023 and okay format that january 2023 so i'm going to hit ctrl c hold down shift right arrow and here we go control v so now we can sort of see that anywhere we are on the model okay here's where we're at in terms of users and we also have revenue so just go down to the user acquisition tab again and grab revenue from 2023 remember these first 12 months no revenue so just link it in and so um you can see from here that then we start monetizing the users and and we can see this so and there's one more metric that i'd like to call out so the um you have your monthly revenue here but there you also have your annual run rate um it's called your arr this is very very common um and what this is is you basically take your monthly revenue your monthly run rate and you multiply it by 12. and so what does this tell us so this basically gives us so here we have 6.8 million monthly we multiply it by 12 to say okay here's the run rate we're currently at if we did this this amount of revenue for 12 months in a row it would be this much annual revenue and businesses are a lot of times valued based on their sort of run rate like okay we'll pay 10 times revenue for your company and so they'll look at okay what's your monthly revenue you know so your arr is 80 million okay we'll pay 10 times that whatever it is so it's good to call that out because it gives you a sense of sort of where you're at from an annual basis and then let's move on to cost of goods sold so down below i have an assumption section and here we're going to break out different assumptions we're making about our business and so let's start with the creator revenue share share so like i said um most of the first generation social media companies gave no revenue to their creators so facebook if you're a content creator on facebook facebook pays you zero they take 100 of the revenue they hide all the user data from the creator and so what's happened is that basically the quality is of the content is extremely low everything's optimized for maximum clicks and a lot of the um actual content itself is just ads now but on youtube for instance youtube is sort of a blend of the last generation technology businesses sorry social network businesses plus the next generation youtube has a very rich history of revenue sharing with its creators so youtube actually pays 55 of revenue um so all those ads that you see over youtube videos 55 of all that revenue gets paid back to the creators and so this is the most generous deal um that of any of the large social network companies right now but now you're seeing companies come out like patreon and other businesses that really almost all the revenue goes to the creators and there's things like subscriptions or there's other models so i'm building sort of a last generation style ad model plus a very generous revenue share similar to something like youtube so creator revenue share 55 okay and then you have let's say hosting amazon web services aws let's just say this is like um ten thousand dollars a month if you don't know what aws is um it is called amazon web services it's the largest cloud infrastructure company um in the world by a long shot it's doing more than 50 billion dollars in in terms of its arr and they basically took all the infrastructure servers all these different services and they put it into the cloud and then you now buy all this stuff from them through subscriptions and um it lowers the cost by usually something like around 30 and the security is better the speed's better so basically all businesses are run or kind of tech is sort of run on aws now so um there's some competitors microsoft google but nothing really compares to amazon so okay so let's say ten thousand twenty thousand fifty thousand it's a subscription we pay to host all of our um all of our all of our tech okay so those are the two main cost of of sales um of cost so fifty five percent of the revenue we're going to collect it and we're gonna pay it back to creators then we have this hosting cost but then we need to hire some team members so let's think about this first we're going to need some customer support reps once we bring the advertisers online um with our advertising platform we're going to need customer support to help the advertisers when they have questions so and then the second thing we're going to need is we're going to need a huge content review team to be constantly reviewing the content and making sure that nothing crazy is happening on the platform and that they can um take down any questionable content and we're going to have to have rules and all that stuff but usually you need a huge content review team so let's start with this users per advertiser and remember advertisers are companies coming to advertise on our platform users for advertiser and then with that we can get total advertisers um let's just fix this format total advertisers and then let's say advertisers per support rep and then customer support so we're trying to figure out how many customer support people do we actually need so let's say users per advertiser so we we start advertising in january 2024. remember one year building one year of getting users and then the third year we start doing it so let's say let's say there's like 20 000 users for each advertiser um because an advertiser needs to be able to show ads to a lot of people um and then advertisers per support rep maybe like 20. maybe one rep can handle 20 advertisers and then also let's figure this out round we want to round let's take the total users here monthly active users and divide that by 20 000. that's going to get us the amount of advertisers that we can ultimately basically get onto our platform no that's supposed to be divided by and then let's see so with this amount of users 106 000 we can get five advertisers and then advertisers per support rep is 20. so then to get the amount of support the customer support reps we need we can just do roundup we can just say 5 divided by 20 because we know there's gonna be one rep for every 20 advertisers and then round that to zero digits so there'll be one rep if there's only five advertisers and they can handle up to 220 there'll be one rep so with this we can just copy these formulas forward now that's going to give us our customer support team and then we need to figure out okay you know how many uh content review people we need and again i'm just making up these um assumptions i don't know if this is like um exactly how each business would would do it but i just want to walk you through the process of how do you create reasonable assumptions that you can defend and try to project forward and create good financial models for your business so next let's talk about the content review team so let's say users per content review rep okay so let's say it starts out at um okay so we don't have any users till january 2023 and let's say you know you can one rep can monitor the activity for 50 000 users and you know probably you're using some sort of software that can flag content that is questionable and then you have like a human review but let's say in january 24 24 you get like some big upgrade to get some more sophisticated kind of ai that allows one rep to handle even more users and sort of um is able to automate flagging and taking down questionable content like it's able to identify it the software is able to identify nudity or or things that are dangerous for the platform or or don't follow the rules um okay so then you have your content review team and so that would be okay we get to here users per content rep so we're going to say round um up total users divided by content reps so for a while it's going to be one but then it's going to go up so um so at the end of year three you're gonna have 1500 advertisers 76 customer support reps to to to support the advertisers and then 303 content review reps and then also we're going to have a benefits taxes etc which is just something that uses we can use to to just calculate um the total payroll cost so that's going to be about 25 so usually you pay 25 on top of any salaries and bonuses that you pay to people but 25 more is like taxes benefits all that stuff okay so we can now build the cost of sales so let me show you how to do this so here we go up to the actual cost of sales and let's create a couple sections so first off simple just to create the creator payments and remember this is the thing that most of the last gen social media companies pay zero they take 100 of the ad revenue and they compensate nobody for doing work but again youtube has sort of led the charge paying creators and google in general pays creators um you know 50 to 75 um of the ad revenue so that has set a nice precedent for sort of future companies so you're going to take the revenue and you are going to multiply by 55 okay just reformat that okay so that's going to be here you'll see that you collect 18 million 90 million revenue when you pay back 10 million out to your creators okay then you have hosting and this is easy because we can just link it in from down below and just link it in here ten thousand and we can just copy that number over so copy it over ctrl c ctrl v we can drag this over just for continuity it's going to be zero okay so now we have revenue we have our annual run rate we have creator payments we have hosting now let's figure out these um these two teams that we just built so that's going to be first customer support and then you have content review content review customer support and then you have your benefits taxes etc so here's a really simple way to model this and if you've seen any of my other videos i basically do this in every model because it's a really quick and and efficient way to model it and very accurate so what you do is down below you have your total right we calculated that in our assumptions the total amount of people on that team so here it's one and then it goes up to like 300 or whatever right what you do is you just put the salary to the left of the position so let's say our customer support reps make 50 000 and they're based in the us but let's say we decide to hire a content review team internationally so in a different country where a lower salary is competitive salary where there's a lot of talent but um you know you can hire a team to review the content and they don't need to be based in the us so let's say um whichever country we we hire that team in um you pay an annual salary of fifteen thousand dollars and so that allows the company to keep its costs lower and from there what you can do is you take the annual salary and i'm going to tap f4 lock the column and then divide it by 12. so that's going to be 50 000 divided by 12 so that's going to get your your monthly salary and then multiply that by the total customer support reps which is going to be in this cell so now if we copy this formula down same thing but multiply it by the content review reps and then finally the benefits taxes etc we're going to sum up customer support and content review multiply that by 25 percent and from there if we just apply a little bottom border and we add this up you'll have your total cogs personnel cost so what we can do with this is just highlight it shift down arrow down or down arrow ctrl c shift right arrow ctrl v so now you see that as the team grows you've got your customer support salaries you've got your content review salaries you've got the benefits for everyone and that the total cost of this personnel is about 900 000 a month at the end of december 2025. so from here now you have your total cost of sales so what you can do is you can just add all this up you can add the creator payments hosting and your total personnel cost so in the beginning it's it's low and the vast majority of your expenses in the beginning are going to be in the operating expenses and the engineering team and it and all that we're about to model that so here you have your cost of goods sold then you have your gross margin so that's revenue minus cogs and so um we can multiply that across so you can see your gross margin and obviously in the beginning it's going to be negative but then it's going to turn positive over time and always include like a gross margin percent because businesses are trying to figure out okay what percent of their revenue can they turn into gross profit so i like to use an if error formula and then just take my gross profit divide it by revenue and then comma and then if you put two quotation marks if there's an error it'll just show zero so okay so i have a little issue here okay 40 percent and so if i just multiply this back you'll see that in any cell where um there would be an error it just shows it shows nothing because i have the two quotation marks okay so what's next so now we have the gross profit and let's move on to the operating expenses so the main expense in our operating expense is going to be our team so we're going to model this out similarly down here we're going to figure out okay how many of each person do we need and then we can put their salaries over here by the side and just sort of use that formula so let's do that so if we start here obviously the main sort of part of our team if we're building this huge technology platform is going to be like technology people so people in engineering i.t a lot of different tech stuff and you know you could create a lot of a lot of different buckets for all these different departments but i'm just trying to create something that's simple that says okay we've got our tech people we've got our creative people marketing people product managers and then sort of anyone else like accounting executives et cetera and that kind of covers it so let's say we start out with um you know a big engineering team so we start out with 20 people on the engineering team maybe five creative people one marketing person because we're not live yet so maybe that marketing person is just kind of getting everything ready um and then five product managers some executives and some maybe you know one accountant or something like that and then again the same 25 percent here so let's say that this team you know gets us into the first six months but then we're like okay we gotta you know we gotta grow this team more we need more people now we're getting closer to the launch so we need more marketing people we need a lot more creative people we need to double our technology team more product managers we you know we hire some more executives so now we're we have this much much larger team and that gets us through the second six months okay but then starting in january now we're going live with our users so now it's really serious we need a much bigger marketing team um we need more designers we need 20 more engineers and again i'm completely making this up but you know this is the structure of sort of how you'd want to plan out a business and you know think through the decisions but it's important to always you know be reasonable and put in a lot of costs because building things like this is really really expensive um so let's say we have more marketers let's say we basically just like double almost every team now keep almost doubling everything you know now we have this huge huge team in 2024 and um we that takes us through the end of the year and let's say in january 2025 that we now we have a hundred marketers 50 creative people 200 engineers 80 product managers you know 50 of everyone else so that's 480 people in addition to your customer support and your content reviews that might be even close to a thousand employees at this point okay so with this we can calculate up above the total personnel expenses in the operating expenses so how many rows do we have here because we can just take this and just copy it so copy this in here we go and now we need to put in salaries and so let's say that this team is fully based in the u.s so i'm just going to kind of make up some some salaries that you know would be sort of reasonable assumptions let's say marketing people make 100k creative 60k technology you know 120 product managers this and executives and everyone else 125. so what we're going to do here same as last time we're going to take this we're going to lock the column so i just tapped f4 you'll see the dollar sign should be in front of the a yeah there you go divided by 12 and then multiply it by the number of people there you go so we have one employee who's making a hundred thousand dollars a year divided by twelve months eight thousand three hundred and thirty three dollars a month so we can do this with everyone here and one trick is it's good to just put commas at the at the top of each section of the p l it's good to put dollar signs but then just sort of best practice financial formatting after you just put commas so you just put the accounting format at the top and at the bottom of each section so now sum all this up multiply it by your 25 percent there you go and the bottom border and at the bottom sum it all up again and there you have a dollar sign so this we can just copy across very easy there are some really complicated ways to to forecast payroll and i just recommend you do it like this i've seen payroll just payroll salary models that are bigger than this entire financial model and i just really don't think that it makes your model that much better to have a insane payroll model i don't think it makes more accurate either okay so what else we're going to have one final section which is going to be other opex and then we'll be able to calculate basically the profit from our company so let's see here so we have our advertising spend tizing spend and we can again pull that in from our user acquisition model remember we had to start the whole model with ad spend and you usually start most startup financial models with ad spend so we have that five thousand dollars a month and we'll just we'll link all that in and let's just do that really quick okay and then let's see okay so i've got it in the wrong month remember we start spending in january 2023 okay so link that in here okay that not sure why that didn't work link in january 2023 okay there we go and so okay now we have numbers through the last month 2.6 million okay that was the right number okay so what else would we have we would have other marketing so advertising is not your only marketing expense a lot of times you have to hire like tons and tons of consultants experts who do really specific things that no one on your team knows how to do so um let's just say that other marketing is i don't know like like five thousand dollars a month and this could be so many people this could be consultants for uh media buying for you know pr for all kinds of different stuff so other marketing here and maybe even just software subscriptions you know um then let's say just technology in general um usually you've gotta invest a lot of money in technology you know all kinds of different stuff hardware software million different things and let's just put in like 20 grand a month every month for that and again this is probably not you know completely comprehensive but in your sort of other opex or miscellaneous sections it's good to just put in a lot of stuff knowing that um you know you there's going to be all kinds of stuff that comes up that you can't foresee today but at least you have some um some dollars in your model to to cover anything like that so let's say uh fixed miscellaneous fixed expense is another 20 grand so um that could cover all kinds of other stuff you know travel you know who knows whatever else and then a variable a variable expense percent of of revenue so variable expense percent of revenue so you can also put in a percent of revenue you know some people just put in um miscellaneous fixed and they put in like a fixed number but you can also put in um like a percent of revenue which is always a good idea so you know our revenue doesn't start till january but let's say we put in like okay five percent of revenue of just like random random costs and it's going to be five percent for the first year and then you know in january 24 2024 it's gonna go down to like uh three percent so we're just going to model that into the operating expenses very simple um and so we'll do that right now so let's go up to the op x so how many sections do we have in there like five one two three four five okay so now we can just take this control c control v so let's see so advertising spend we can just link that straight in of course in the beginning that's going to be zero but we can just link everything in here so we linked everything in and then the one that we need to calculate is variable expense percent of revenue so we're just going to go up to revenue and we're going to multiply it by that percent so here it's zero um and then bottom border sum everything up add it together that's 40 000 and then by the tail end of this it's going to be 3.23 million and just really quick by the way if you're finding this content valuable please like this video and subscribe to my channel right now so you don't miss any of my new videos okay so now let's move on to operating profit as well as our vc fundraising rounds so put in a few lines here and we're gonna have operating profit and so this um i like to do a fancy let's see double bottom border top and double bottom border okay but before we calculate operating profit let's just create a total opex line so just total off x so we can just add it all together 372 plus 40 000 so there we go so for operating profit it's going to be gross margin minus total opex so these two things we can calculate together and then um also let's just write the formula here for ebit percent ebit and operating profit ebit is earnings before interest and taxes operating profit is the same they're synonyms so um ebit percent i'm going to use that if error formula if error divide your profit by your revenue but if it's an error show two um quotation marks which is just zero it shows nothing okay so now i can take all this copy c shift right arrow and where's the end here copy v okay so why is that not working looks like i didn't copy it okay so what are we about to see here so let's just zoom out for a second okay so this should be percentage percentages so if we zoom out just a little bit i just want to look at okay where are we with our revenue so if you look our total revenue by the end of this is 18 19 million a month but just one year before that in december it's only you know 412 000 a month so ramping up really really fast as we increase our cpms as we increase our ad load as we are starting to get the network effects from a lot of organic downloads and so you'll see that the gross margin in the beginning is negative and then it becomes positive and then it stabilizes around 40 percent and that our operating profit you know is is very very negative you know we're losing lots and lots of money each month but we know that as we scale up our revenue we will become profitable so here it looks like by the end of this we went from you know very large uh burn rates to almost break even so only negative five percent operating profit so that means that probably within you know six months or less this business could break even if um if it wanted to or they could try to grow even faster and keep raising money which would probably be the smarter decision um so now the final piece is let's look at um like any new capital that the business needs to keep growing through all these different phases in its life cycle as well as the cash balance slash runway and you'll notice that i didn't create a balance sheet with this model and the reason is because this business has basically no assets and it has no deferred revenue it doesn't have complicated cash dynamics you can basically just make the income statement cash basis and that's the easiest way to do it so you know sometimes people would be capitalizing all their engineering costs to like an asset on the balance sheet and then depreciating it but in this situation i think it's easier to just expense everything um and it's it's it's totally fine and because the balance sheet won't really give you uh more insights into how this business is working so with certain startups i don't think building a balance sheet is important at least not for a while okay so cash balance runway so let's say to start this off new capital and i'm going to put this in blue assumptions always in blue i'm going to say 15 million dollars so what is that based on well let's just say the back story is that the team that we have that founded this company really experienced team who have built other social network companies who have a lot of connections who have the idea and a bunch of venture capitalists come in to back them and say we really want to be invested with this team so they're able to raise 15 million just on the idea then what you do is you take that initial balance so you have 15 million in the bank and you add the operating profit to so this is your burn this is how much cash you lose each month so by the end of month one you start at 15 million but then you have a little less and by the end of month two you have your 14.5 million you burn another 444 but then just add the new capital line to it so that any time you put something here in the new capital line it gets added into your cash so let's say for the first 12 months we um well let's see if we have enough money for 12 months so okay so for 12 months let's zoom out a little so for 12 months you know we're burning through this cash it gets down to about 7 million but then we're ready to go live and let's say we we we we go out and we say okay we need to raise another fundraising round we're down to 7 million but we want to you know push really hard on marketing now we need a bunch of cash because we're going to run out of cash soon and our same investors come back in and they back us with you know 20 million more dollars they say wow you know we're this is a great product is a great team you know we want to be invested so then now we have 25.8 million dollars and so let's see how long that can last us based on our sort of increased burn rates so let's take this out to december 2023 um and so how much money do we have oops it's got to be backwards oh yeah i'm going to delete the 20. so how much money do we have now because so it's it's going down we're burning obviously 1.5 million dollars a month but remember we are acquiring our first users now we haven't monetized them yet but we're we're building building building so we get down but i mean by december 2023 we're down to 9.5 million so um we go out and we say okay we need to do another big round now we've got um you know we're starting to monetize this month we've got 106 000 users but our growth is is really parabolic so we're going to go out and we're going to raise 40 million and of course the terms of each of these deals is is you know you'd have to agree on evaluation and all this different stuff but you know we're just trying to figure out what are our cash needs so with this 40 million let's see if we can get another 12 months because now we're really ramping it up um you know we're burning a ton of cash now um because we're growing so fast we're burning you know 3 million a month and so this 40 million gets us kind of another year but it looks like we're you know we're running out of cash again so let's say in january we raise now our um revenue is let's see what it is 1.5 million a month but growing you know from 200 thousand three you know four or one point five and so you the revenue is growing really fast and let's say um we said we we're going to raise like a 75 million dollar round so we're getting a really high valuation now um and we say okay let's let's go for it um and let's see if that at least gets us to the end of 2025 again delete this so by the end of 2025 our burn rate starts to actually decrease and looks like we're getting closer to break even we got 50 million dollars in the bank so if we want to go more aggressively on the paid marketing or we want to hire a much bigger team or you know something like that or we want to acquire another company we've got a lot of cash in the bank we're prepared and just as an fyi i mean a business doing a social network or a social media platform doing you know 18 19 million dollars a month in revenue at a 226 million dollar run rate and growing this fast this company would be worth many many billions i mean two three four five ten maybe even 10 billion i mean it's it's hard to say it would depend a lot on the investors but this is a multi-multi-billion dollar company um and so yeah this is kind of what the dynamics would look like in three three years of users and one year of sort of pre pre-user building a platform and so i hope this video was really helpful and you learned a crazy amount okay so now i hope you have a really good understanding of how social media and social networking companies monetize your users and scale by the way in the description below you can download this excel file completely for free if you want to use it for yourself i've also linked down below to some of my other financial modeling videos other really important startup financial model business models like the marketplace financial model like the sas financial model subscription-based ecommerce financial model check those out and if you found this content valuable please subscribe and click the little bell icon like this video leave me a comment below and also check out my online courses if you need to improve your excel and finance skills that's all for today thanks for watching and i will see you in the next video